China Business Entry: The Overlooked Counter-party

Americans coming to China for the first time often skip over some of their most important or obvious advantages. One of the most exciting potential assets in China may be the guy from your own graduating class or ex-colleague. Expat run businesses can be great partners – for certain types of businesses.

Let’s look at the advantages for finding a ‘local China partner’ who just happens to be another westerner:

    1) They know your learning curve.
    You’re not stupid – but you’ll never speak flawless Mandarin or blend in effortlessly at KTV outings. Other expats know the work-arounds and limits that apply to your situation.

    2) All the admin & paperwork should have been handled.
    If they aren’t properly licensed and plugged in with the right lawyers, consultants and agencies, then it’s a pass. But if they’ve had a functioning business in Shanghai for 3+ years, you can knock months of aggravating BS right off your entry plan.

    3) They know your client base.
    They know who you should be working with and how to reach them. You don’t want to figure this out by trial and error.

    4) Trust.
    You shouldn’t assume that a western partner is any more trustworthy than a local partner – but you can spot danger signs and draw your own conclusions with people from your own culture.

Disadvantages:

    1) China has changed a lot in the last 3 years.
    Twice, at least. In 06 it turned more private & organized and it boomed for a while. Then came the crash. If you sign up with an established ex-pat, make sure he is benefiting from China’s latest permutations. The trend in China is towards greater middle-class consumption – which is a good deal different from the MWM (Mainlander with Money) consumptions patterns we’ve been seeing. China is more about the mass markets now. Does your guy have a way to capitalize on that trend?

    2) Old-school or old hand?
    If your guy is telling stories about the ‘Old Days’ while having trouble rolling with more recent changes, you may not be helping yourself much. Make sure the old hand has a young, strong brand.

    3) Lack of street cred.
    You are getting in on the wrong trend. This guy will help you get up to speed faster – but then may start holding you back. You may want to keep options open – or at least have a ‘sunset clause’ on your deal so that it expires on its own some day soon.

    4) Market considerations.
    Will this partner help you access the market? That is the single biggest consideration when starting a business in China.

Still, with the right type of offering and a good pre-deal understanding of the other side’s goals and abilities, this could end up being win-win. You get a super-fast entry into China, and your new partner gets a vital cash injection, management talent and new products or services. The only downside is that you’ll be training your own competition in a new city with the remainder of your cash.

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